In re Rudd
| Decision Date | 08 January 1987 |
| Docket Number | Adv. No. 85-6041.,Bankruptcy No. 85-60413 |
| Parties | In re Elmer Lawson RUDD aka Lawson Rudd, Debtor The ESTATE OF Edward SCHUBERT, Deceased, and David Schubert, Plaintiffs, v. Elmer Lawson RUDD aka Lawson Rudd, Defendant. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana |
Thomas Scully, Munster, Ind., for defendant.
Robert Schwerd, Highland, Ind., for plaintiffs.
On April 12, 1985, the Plaintiffs filed their complaint versus the Defendant in the above adversary proceeding praying that a certain order or judgment entered in favor of the Plaintiffs versus the Defendant in the Lake Superior Court, Room Two, under Cause No. 79-138 captioned "In the Matter of the Estate of Edward Schubert, Deceased", on November 15, 1984 in the sum of $5,250.00 in compensatory damages and $3,000.00 in punitive damages be determined to be non-dischargeable pursuant to 11 U.S.C. § 523(a)(6), and also praying for attorney's fees and interest.
On May 15, 1985, the Defendant filed an answer and pursuant to order of this Court on July 30, 1985, a pre-trial conference was held on August 29, 1985.
The parties stipulated that the state court order (judgment) was entered after a trial on the merits and thus there is a threshold legal issue to be resolved as to whether the state court order or judgment should have one of the following effects upon this dischargeability proceeding: 1) The doctrine of res judicata or claim preclusion as to the issue of non-dischargeability should be applied and no further evidence need be taken by this Court to render its judgment based on the state court judgment; 2) The state court judgment is not res judicata as to the issue of non-dischargeability but the doctrine of collateral estoppel or issue preclusion should apply and this court should base its conclusions of law as to non-dischargeability solely on the record and findings of fact in the state court proceedings; 3) This Court should deny res judicata (claim preclusion) and collateral estoppel (issue preclusion) effect to the order or judgment and relitigate all of the factual issues raised in the state court; or, 4) This Court may take additional evidence in this adversary proceeding and based on its findings of fact as to that evidence together with giving the findings of facts and the record in the state court judgment evidentiary rather than collateral estoppel status, reach its legal conclusions as to whether the underlying debt is nondischargeable.
The parties briefed the issue, Plaintiff filing its brief on September 30, 1985, the Defendant filing its brief on November 29, 1985, and the Plaintiff filing its reply brief on December 9, 1985.
The state court order or judgment upon which the Plaintiffs base their nondischargeability complaint made the following findings of fact:
The Court in its conclusions of law found that neither the document nor the parol evidence submitted by the Defendant satisfied the Indiana Statute of Frauds (I.C. 32-2-1-1 et seq.), and therefore the Court adjudged that the Defendant as petitioner take nothing by his petition and that the Plaintiffs herein (defendants in the state action) recover from the Defendant on their counter-claims the sum of $5,250.00 in compensatory damages and $3,000.00 in punitive damages but denied any award of attorney's fees. A copy of the counterclaim was not submitted by the parties.
No indication was given as to how the damages were computed by the state court.
No objections were made by the parties to the jurisdiction of this court and the Court finds this is a core proceeding pursuant to 28 U.S.C. § 157.
11 U.S.C. § 523(c) grants to the bankruptcy court exclusive jurisdiction to determine whether or not a debt is non-dischargeable under sections 523(a)(2), (4) and (6) of the Bankruptcy Code.
The bankruptcy courts have struggled with the applicability of the doctrines of res judicata or claim preclusion and collateral estoppel or issue preclusion as to a state court judgment vis-a-vis the clear congressional intent that exclusive jurisdiction vests in the bankruptcy court to determine the dischargeability of a debt, when one party to the state court judgment asserts in an adversary proceeding filed in the bankruptcy court under 11 U.S.C. § 523(c), that the prior state judgment between the parties precludes further litigation or obviates further litigation in the bankruptcy court on the issue of its non-dischargeability.
The phrases "res judicata" and "collateral estoppel" have been assigned a variety of meanings by the courts in many different contexts and their use has often resulted in only increasing the confusion as to when these doctrines are properly applicable. Accordingly, this Court will not use these terms but will use the term "claim preclusion" in lieu of "res judicata" and the term "issue preclusion" in lieu of the term "collateral estoppel".2
The reader should thus also be aware that many of the decisions referred to herein do not make reference to the preclusion terminology, but use the terms res judicata and collateral estoppel and thus these variances in terminology must be kept in mind in analyzing these cases.
The general principles of claim preclusion and issue preclusion and their purposes should be first noted. These doctrines serve a multitude of purposes. They encourage reliance upon judicial decisions by preventing inconsistent decisions; they conserve the resources of the Courts and the litigants; they promote comity between the state and federal courts; and, they ensure judicial finality. See, Ferrell, The Preclusive Effect of State Court Decisions in Bankruptcy, First Installment, 58 Amer.Bankr.L.R. 349, 351 (1984).
One frequently quoted definition of the basic Rule of Claim Preclusion is from the United States Supreme Court's opinion in Commissioner v. Sunnen:
The rule provides that when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound "not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose." Cromwell v. County of Sac, 94 U.S. 351, 352 , 24 L.Ed. 195 . . . 1876. The judgment puts an end to the cause of action, which cannot again be brought into litigation between the parties upon any ground whatever, absent fraud or some other factor invalidating the judgment.
Commissioner v. Sunnen, 333 U.S. 591, 597, 68 S.Ct. 715, 719, 92 L.Ed. 898 (1948).
As opposed to claim preclusion, issue preclusion prevents litigation by parties to a previous action of issues that have been "actually and necessarily determined by a court of competent jurisdiction. . . ." Montana v. United States, 440 U.S. 147, 154, 99 S.Ct. 970, 974, 59 L.Ed.2d 210 (1977). As the Supreme Court noted in Southern Pacific Railroad Company v. United States:
The general principle announced in numerous cases is that a right, question, or fact distinctly put in issue and directly determined by a court of competent jurisdiction, as a ground of recovery, cannot be disputed in a subsequent suit between the same parties or their privies; and, even if the second suit is for a different cause of action, the right, question, or fact once so determined must, as between the same parties or their privies, be taken as conclusively established, so long as the judgment in the first suit remains unmodified.
The Restatement (Second) of Judgments defines issue preclusion in the following terms:
When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.
Restatement (Second) of Judgments, § 27 (1982).
Thus, issue preclusion is more limited than claim preclusion as issue preclusion only applies to individual legal and factual issues and not to an entire cause of action.
In the context of prior state court judgments and their non-dischargeability in bankruptcy, the Supreme Court in Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979), has spoken as to claim preclusion or res judicata and denied claim preclusion effect to state court judgments in bankruptcy dischargeability litigation. The issue in Brown v. Felsen, supra, was whether the bankruptcy court could consider evidence extrinstic to the judgment and...
To continue reading
Request your trial